Five questions answered on the failed BAE-EADS deal

A breakdown.

After the merger of BAE and EADS fell through yesterday, we answer five questions on why the two European super-defense companies failed to make a deal.

What do BAE and EADS do exactly?

BAE Systems is a UK owned multi-national defense security and aerospace company that the UK government has shares in. It is one of the biggest defense companies in the world and is one of the six largest suppliers to the US Department of Defense.

EADS is a part Franco-German owned aerospace and Defense Corporation and the leading military defense contractor worldwide. It is also the owner of the Airbus airplane.

What was the proposed deal?

To merge the two super companies and combine EADS aerospace’s Airbus with BAE’s expertise in military and defense, as well as potentially cutting costs.

If the deal had passed what would it have meant for the two companies?

It would have created a European defense company similar in size to the US Boeing, combined revenues of £59bn and profits of £2.4bn, had 25,000 employees and brought together BAE's strong presence in the US together with Airbus' booming business in the growth market of Asia-Pacific.

In a joint statement released yesterday the companies said:

"The merger would have produced a combined business that would have been a technology leader and a greater force for competition and growth across both the commercial aerospace and defence sectors."

Why did the deal fall through?

It seems the deal primarily fell through because of the three governments – UK, France and Germany –involvements in the merger. Before this the deal had all been worked out.

It has been reported that Germany were generally against the deal, while the UK government were insistent the company heads representing the France, Germany and UK shares should not sit on the top board or own more than 9 percent each of the merged outfits for fear of alienating BAE’s biggest client, the US, with possible European government involvement.

The deal was dropped yesterday when it became obvious Germany was unwilling to co-operate.

What is the future for BAE?

BAE is now seen as a potential takeover target. However, if any other governments try and buy a significant share this could be vetoed by the UK government's share in the company. BAE will now have to struggle with defense spending budget cuts by the UK and the US, which are its two main customers. However, it is thought despite some potential job losses the company will be stable for the foreseeable future.